WASHINGTON -- A delicately crafted compromise aimed at winning small-bank support for interstate branching appears to be falling apart just as a key House panel is preparing to deal with the issue.

"I'm a lot less optimistic than I was two or three weeks ago," said Kenneth Guenther, executive vice president of the Independent Bankers Association of America.

Treasury Department officials had tried to woo the group by offering to protect banks in small towns from new competition. The plan would prohibit out-of-state banks from branching into towns with fewer than 50,000 people.

Thumbs Turning Down

However, at least three of the six big regional banks that are pressing for an interstate branching bill this year have turned thumbs down on the proposal. They are BankAmerica Corp., First Interstate Bancorp, and Norwest Corp.

The other three regionals in the talks are NationsBank Corp., Fleet Financial Group Inc., and Chemical Bank. It was unclear whether they were willing to accept the proposal.

Also up in the air are two other measures insisted upon by the Independent Bankers: regulatory exemptions for small banks and limits on thrift banching activities.

The House Banking subcommittee on financial institutions has tentatively decided to conduct a hearing in late June on interstate branching, and aides have held out the possibility that a vote could follow soon thereafter.

But sources said the panel's chairman, Rep. Frank Annunzio, D-Ill., is delaying a final decision on the hearing until it is clear that the major parties to the deal -- primarily the regional banks and the Independent Insurance Agents of America -- have reached an agreement on legislative language.

While the two issues are not directly related, the insurance agents have agreed to support the regional banks' interstate agenda in return for help on their efforts to overhaul the system of bank insurance regulation.

Top Priority

The Independent Bankers were brought into the deal by Treasury, which has made branching a top priority. Last year, the small-bank trade group played a decisive role in defeating the administration's banking bill.

The administration would also like to bring the larger American Bankers Association aboard, but the ABA has been cool to the deal shaping up between the agents and the regionals. While the ABA supports interstate, it is opposed to the insurance restrictions proposed by the agents.

So far, Mr. Guenther said, the legislative language being crafted for consideration by the banking panel focuses primarily on insurance issues. And the language being crafted by the insurance agents appears far more restrictive than bank groups originally thought.

Mr. Guenther, for example, objected to restrictions on annuity sales, which are important to a number of his members. Other industry sources said the agents had proposed ending the Comptroller of the Currency's power to authorized activities "incidental to banking."

Fred Martin, senior vice president and director of government relations for Bank of America, said he is hopeful that the agents and the regional banks can reach final agreement.

"The devil is in the detail, but the details are coming in," he said. "We're all still at the table."

Most observers think the interstate package is nearing the end of its legislative life, at least for this year.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.